A Prominent CPA Analyses President Trump’s New Tax Law

Finally, in this currently politically polarized nation,
Democrats, Republicans and Independents alike, whether they are living and
working in the blue states on the East and West Coasts, in the red states in
the middle, or in the South can be heard asking the same exact question during
this tax season: How does President Trump’s tax plan, the Tax Cut and Jobs Act
(TCJA), affect me?

However, while the overwhelming majority of accountants are said
to be in a non-partisan manner asking that question on behalf of their clients,
most economists have shown themselves to be anything but non-partisan. As
regularly reported in the media, virtually every Democrat and liberal economist
has declared TCJA to be a gift to the wealthy and a punishment to the working
class and the poor. So according to them, if you fit into either one of these
last two categories, TCJA works against your economic well-being. On the other side, most of their Republican
and conservative counterparts have proclaimed that the plan reduces taxes for
Americans at every financial level. So, in
their view, whatever your income level, TCJA will leave you with more cash in
your pocket.

As to be expected,
elected officials of both parties have been outspoken forecasters as to who
will benefit and who will be harmed by TCJA. And predictably, those forecasters
have also followed the party line. Typical of the praise TCJA has received from
Republican lawmakers was offered by the longest serving member of the House of
Representatives, Hawaii Congressman Don Young. Asserting that the Trump tax
plan helps people of all economic classes, Young exclaimed that it “does what’s
right for the nation, and the great land will be great again.” New York U.S.
Senator Schumer, as you would expect, holds the opposite view: to Schumer,
under TCJA, “the working class, middle class and upper middle class get
skewered while the rich and corporations make out like bandits.”

However, to Mike
Savage, the founder, owner and CEO of 1-800- Accountant, one of the largest
accounting firms in America specializing in individual tax payers and small business
owners, both analyses are off base. Savage, whom I interviewed last week in the
large mid-town Manhattan office he shares with the 360 accountants and
bookkeepers who work for his firm, told me, “Anyone who tries to place
political labels on President Trump’s tax plan is seriously mistaken, or knows
better, but is trying to score some cheap political points. In reality, to
understand Trump’s tax plan and how it impacts on the individual American
taxpayer, you must look at other factors, most significantly, where you live.”

Savage, 45, who worked
as a CPA in a major accountant firm before starting 1-800 Accountant 5 years
ago, elaborated, “if you are in a higher income level bracket, own a home and
live in a state with high state income and high property taxes, the new tax
plan works against you. On the other hand, if you are in a lower- middle,
middle or even upper middle- income level, own a home and a live in a state
with low state income and low property taxes, it probably {TJAC} works to your advantage.”

The high taxed states Savage was referring to, actually
there are fifteen generally so designated, include, California (12.3%) Oregon
(9.9%,), Minnesota (8.5%), New Jersey (8.9%), the District of Columbia (8.95%)
and New York (8.82%). By contrast, from the 35 generally categorized low taxed
states, 7- Alaska, Florida, Nevada,
South Dakota, Texas, Washington and Wyoming- waive all income tax payments. And two others- New Hampshire and Tennessee- tax their
citizens only on their dividends and investments.

Referring to two key features of TJAC, Savage explained why
taxpayers from these 35 low or non- taxed states are helped and taxpayers from
high taxed states are hurt by it. “Home owners {under TJAC} can deduct interest
on home loans only up to $ 750,000 and income earners can deduct only a maximum
of $10,000 on state and local deductions”, he stated.

“So”, Savage
continued, “if you live in a state that has high local and state income taxes
and million- dollar plus home values, you lose 2 major deductions you used in
the past. But you are unaffected by this if you live in states with low state
and local income taxes with homes that sell in a more modest range, which
leaves you to receive benefits, without losing anything, from the tax payer
friendly components of the plan, which include the almost doubling of the
standard deduction {the flat, non- itemized percentage of your annual income
the I.R.S. allows you to subtract from your total yearly earnings}, and the
increase of the child tax credit from $1,000 to $2,000 for each qualifying
child.”

However, Savage,
whose firm provides both personalized and virtual tax preparation and a host of
other accounting and bookkeeping services to approximately 200,000 business
owners throughout America, said that, unlike the individual state to state
variables affecting the non-self- employed individual tax payer, TJAC is
geographically neutral to America’s entrepreneurs. “ The President’s tax plan
has the same impact on business owners throughout every one of the fifty states. There are many plusses and minuses of the
plan for business owners, all irrespective of where the business is located”,
Savage noted.

Discussing the “plusses” first, Savage contended that the most
important business friendly aspect of TJAC is the 20% tax deduction it affords
to small business owners. “That is probably the single largest benefit they
receive. It reduces what was previously a very heavy tax burden and allows them
to keep a larger portion of the profits they earned and also to grow their
businesses”, he stated.

The second benefit business owners derive from TJAC, Savage
contended, is found in the provision of the law which allows them to deduct up
to 1 million dollars for the cost of newly purchased equipment, up from
$510,000 from the previous code. In addition, as part of a related provision,
business owners can now deduct 100% of the total cost of equipment or any other
asset, including real estate or a new automobile, in the same year it was
purchased, where in the previous law only a 50% deduction for the same was
allowed. “These capital investment deductions are great for businesses”, Savage
maintained. “Many of my clients use the
money they save in tax payments to purchase more and sometimes even better
equipment and update other assets.”

Lastly, as a major new advantage TJAC offers to small
business owners, Savage cited the new tax credit, ranging from 12.5% to 25%,
for salaries paid to workers who are on medical or family leave. “Employees who
receive paid leave are often replaced by temps, leaving the business owner to,
in effect, pay two salaries for one job’’, said Savage. “This has proven to be especially difficult
for owners of small businesses. The new
tax credit {for family and medical leave} will lessen that burden.”

While Savage told me that he believes that on balance TJAC is
beneficial to small business owners, he did not minimize the negative impact
that several features of the bill will impose on many of them. He noted that
the most unfavorable to small business owners portion of TJAC involves the loss
of three deductions that previously had been used by them. “Overall I believe
it {TJAC} to be a plus for small business owners. However, under the new law business
owners will be hurt by the loss of three basic deductions they were allowed to
take prior to it”, he said.

Savage told me that
he believes for many businesses the most
harmful of the three is the loss of the deduction for entertainment expenses.
Before TJAC, he noted, business owners were allowed to deduct up to 50% for
such business- related entertainment expenses as treating clients to shows and
to sporting events. The new plan, he stated, totally eliminates that deduction.
“Entertainment is a time- worn tool used
by business owners to develop closer relationships with their clients, and at
the same time, attract new business opportunities. With that deduction now gone,
many business owners will unfortunately no longer be able to afford it”, he bemoaned.

The next two deductions which TJAC reduced or eliminated
were, according to Savage, interconnected because they involve benefits many
business owners had previously provided to their employees. Savage pointed out that
while in the past employers were allowed to take a 100% deduction for meals
they provided to employees, they are now allowed to deduct only 25% for that
employee perk; and by 2025, that deduction will be totally eliminated.

Similarly, Savage noted, under the former tax code,
employers were able to deduct the cost they assumed to pay for parking and public
transportation for their workers.
However, under TJAC, he
expounded, that deduction can no longer be taken.

Explaining why he
believes these two new TJAC provisions are harmful to small business owners,
Savage stated, “Treating employees to meals and picking up transportation costs
has for years been a great way for business owners to demonstrate their
appreciation to their employees, and, at the same time to in effect supplement
their salaries. Unfortunately, without the deductions allowed in the past, many
business owners will no longer be able to afford the cost of providing these
benefits.”

While providing his analysis of
TJAC to me for an hour and a half, the only advise relating to tax preparation under
the new plan that Savage was willing to publicly offer to individual taxpayers
and small business owners was simple. “The new federal tax plan is complex’’, he
stated. “{So} Make certain that your accountant is certified, always accessible
and possesses a thorough knowledge and understanding of every one of the many components
of the new federal tax law, as well as your individual state current tax code. This is the only way of ensuring that you will
receive the full tax relief you are legally entitled to.”

Sounds like the kind of sound advice that even Democrats,
liberals, Republicans and conservatives might agree with.

Robert Golomb is a nationally and internationally published
columnist. Mail him at MrBob347@aol.com and follow him
onTwitter@RobertGolomb